Seven years after Congress banned payday-loan companies from charging exorbitant interest rates to service members, many of the nation's military bases are surrounded by storefront lenders who charge high annual percentage rates, sometimes exceeding 400 percent.

The Military Lending Act sought to protect service members and their families from predatory loans. But in practice, the law has defined the types of covered loans so narrowly that it's been all too easy for lenders to circumvent it.

"We have to revisit this," said Sen. Dick Durbin, D-Ill., who chairs the defense appropriations subcommittee and is the Senate's second-ranking Democrat. "If we're serious about protecting military families from exploitation, this law has to be a lot tighter."

Members of the military can lose their security clearances for falling into debt. As a result, experts say, service members often avoid taking financial problems to their superior officers and instead resort to high-cost loans they don't fully understand.

The Department of Defense, which defines which loans the Military Lending Act covers, has begun a process to review the law, said Marcus Beauregard, chief of the Pentagon's state liaison office.

The act mainly targets two products: payday loans, usually two-week loans with annual percentage rates often above 400 percent, and auto-title loans, typically one-month loans with rates above 100 percent and secured by the borrower's vehicle. The law caps all covered loans at a 36 percent annual rate.

That limit "did do a great deal of good on the products that it covered," Holly Petraeus, the Consumer Financial Protection Bureau's head of service member affairs, said in an interview. "But there are a lot of products that it doesn't cover."

Representatives from payday and other high-cost lenders said they follow the law. Some defended the proliferation of new products as helpful to consumers.

A 400 Percent Loan

In June 2011, when Levon Tyler, a 37-year-old staff sergeant in the Marines, walked into Smart Choice Title Loans in Columbia, S.C., it was the first time he'd ever gone to such a place, he said. But his bills were mounting. He needed cash right away.

Smart Choice agreed to lend him $1,600. In return, Tyler handed over the title to his 1998 Ford SUV and a copy of his keys. Tyler recalled the saleswoman telling him he'd probably be able to pay off the loan in a year. He said he did not scrutinize the contract he signed that day.

Tyler said he provided his military ID when he got the loan. But even with an annual rate as high as a typical payday loan, the Military Lending Act didn't apply. The law limits the interest rate of title loans — but only those that have a term of six months or less.

In South Carolina, almost no loans fit that definition, said Sue Berkowitz, director of the nonprofit South Carolina Appleseed Legal Justice Center. The reason? Ten years ago, the state legislature passed consumer protections for short-term auto-title loans. In response, lenders simply lengthened the duration of their loans.

Today, plenty of payday and auto-title lenders cluster near Fort Jackson, an army base in Columbia, legally peddling high-cost loans to the more than 36,000 soldiers who receive basic training there each year.

Tyler's loan showcases other examples of lenders' ingenuity. Attached to his contract was an addendum that offered a "Summer Fun Program Payoff." While the loan's official term was 32 months, putting it outside both South Carolina's regulations and the Military Lending Act, the "Summer Fun" option allowed Tyler to pay off the loan in a single month. If he did so, he'd pay an annual rate of 110 percent, the addendum said.

Michael Agostinelli, the chief executive of Smart Choice's parent company, American Life Enterprises, told ProPublica he wants his customers to pay off their loans early. "They're meant to be short-term loans," he said. He also said that customers who pay on time get "a big discount." In Tyler's case, he would have paid an annual rate of 192 percent if he had made all his payments on time.

But Tyler fell behind after only a couple of payments. Less than five months after he took out the loan, a repo company came in the middle of the night to take his car. Three weeks later, it was sold at auction.

"This was something new, and I will never do it again," Tyler said. "I don't care what type of spot I get in."

American Life Enterprises companies operate nine title-lending branches in Nevada and South Carolina. Agostinelli said loans to members of the military are rare for his companies but that service members might go to a title lender for the same reason anybody else does: They need money immediately and discreetly.

Loans similar to the one Tyler took out are broadly and legally available from stores and over the Internet. QC Holdings, Advance America, Cash America and Ace Cash Express — all among the country's largest payday lenders — offer loans that fall outside the definitions of the Military Lending Act, which defined a payday loan as lasting three months or less.

The annual rates can be sky high, such as those offered by Ace Cash Express in Texas, where a five-month loan for $400 comes with an annual rate of 585 percent, according to the company's website.

Ace Cash is among a number of payday lenders just outside the gates of Lackland Air Force Base in San Antonio, and it has four stores within three miles of Fort Hood in Texas.

Amy Cantu of the Community Financial Services Association of America, which represents the payday industry, said payday lenders are careful to screen out service members for their short-term products. But she acknowledged that payday companies may provide soldiers and their families with other types of loans. "We welcome more products in the market," she said of the trend of payday lenders increasingly offering longer-term loans. "Options are good for consumers."

Earned a Purple Heart, Lost a Car

Some lenders apparently haven't bothered to change their loan products in response to the law.

A 2011 federal class-action suit filed in Georgia's Middle District alleges that one of the largest auto-title lenders in the country, Community Loans of America, has been flouting the law. The suit names among its plaintiffs three soldiers who took out what appeared to be classic title loans. All agreed to pay an annual rate of around 150 percent for a 30-day loan. All had trouble repaying, according to the suit. One, an Army staff sergeant and Purple Heart recipient, lost his car. The other two managed to pay interest but almost none of the principal on their loans for several months.

The company was fully aware that its customers were soldiers, because they presented their military identifications, said Roy Barnes, a former governor of Georgia who is representing the plaintiffs.

Community Loans, which boasts more than 900 locations nationwide, argued in court that the transactions were not covered by the Military Lending Act because they weren't loans but sales. Here's how Community Loans said the transaction worked: The soldiers sold their vehicles to the company while retaining the option to buy back the cars — for a higher price. In early 2012, the judge rejected that argument. The case is ongoing.

Community Loans, which did not respond to numerous calls and emails, has been making loans to service members through businesses with various names.

Leading up to the gates of Fort Benning in Columbus, Ga., Victory Drive is crowded with lenders. Among them is Georgia Auto Pawn, a Community Loans of America storefront where one of the plaintiffs in the class action, an Army master sergeant, took out his loan.

Just another half-mile down the road is a lender advertising "Signature Loans for the Military." The lender goes by the name of Title Credit Finance, but the parent company is Community Finance and Loans, which shares the same corporate address as Community Loans of America.

A billboard for Title Credit Finance promises to rescue borrowers: Showing a picture of a hamster on a wheel, it says, "Avoid the title pawn treadmill," referring to customers who get caught paying only interest month after month.

Title Credit Finance offers installment loans, a product which, as the company advertises, does seem to provide "CASH NOW The Smart Way" — at least when compared to a title loan. Interest rates tend to be lower — though still typically well above 36 percent. And instead of simply paying interest month upon month, the borrower pays down the loan's principal over time.

But the product comes with traps of its own. Installment lenders often load the loans with insurance products that can double the cost, and the companies thrive by persuading borrowers to use the product like a credit card. Customers can refinance the loan after only a few payments and borrow a little more. But those extra dollars typically come at a far higher cost than the annual rate listed on the contract.

At TitleMax, a title-lender with more than 700 stores in 12 states, soldiers who inquire about a title loan are directed to InstaLoan, TitleMax's sister company, which provides installment loans, said Suzanne Donovan of the nonprofit Step Up Savannah. A $2,475 installment loan made to a soldier at Fort Stewart near Savannah, Ga., in 2011 and reviewed by ProPublica, for example, carried a 43 percent annual rate over 14 months — but that rate effectively soared to 80 percent when the insurance products were included. To get the loan, the soldier surrendered the title to his car. TMX Finance, the parent company of both TitleMax and InstaLoan, did not respond to multiple calls and emails seeking comment.

Another lender on Victory Drive is the publicly traded World Finance, one of the country's largest installment lenders, with a market capitalization of about $1 billion and more than 1,000 stores around the country. World was the subject of an investigation by ProPublica and Marketplace earlier this week. Of World's loans, about 5 percent, approximately 40,000 loans, are made to service members or their families, according to the company. Active-duty military personnel and their dependents comprise less than 1 percent of the U.S. population, according to the Defense Department.

Bill Himpler, the executive vice president of the American Financial Services Association, which represents installment lenders, said the industry's products had been rightfully excluded from the Military Lending Act. The Pentagon had done a good job preserving soldiers' access to affordable credit, he said, and only "tweaking the regulations here or there to tighten them up" was necessary.

The Commander and the Collectors

It's not known how many service members have high-priced loans. The Pentagon says it intends to conduct a survey on the matter soon and issue a report by the end of the year.

But some commanders, such as Capt. Brandon Archuleta, say that dealing with soldiers' financial problems is simply part of being an officer. Archuleta, who has commanded soldiers in Iraq and Afghanistan, recalled fielding numerous calls from lenders trying to track down soldiers who were delinquent on debts.

"In the last 12 years we've seen military officers as war fighters, we've seen them as diplomats, we've seen them as scholars," Archuleta said. "But what we don't see is the officer as social worker, financial adviser and personal caregiver."

While some soldiers seek help from their superior officers, many don't. That's because debt troubles can result in soldiers losing their security clearance.

"Instead of trying to negotiate this with their command structure, the service member will typically end up refinancing," said Michael Hayden, director of government relations for the Military Officers Association of America and a retired Air Force colonel. "It'll typically start out with some type of small crisis. And then the real crisis is just how you get that loan paid off."

Soldiers who hide their debt often forego the military's special aid options. Army Emergency Relief and the Navy-Marine Corps Relief Society offer zero-interest loans. But in seeking that help, a soldier risks alerting the commanding officer to his or her troubles, particularly if the sum needed is a large one.

Russell Putnam, a legal-assistance attorney at Fort Stewart, says he often finds himself making a simple argument to soldiers: "A zero percent loan sure as heck beats a 36 percent plus or a 25 percent plus loan."

24 comments

I’m not sure I follow the premise of this article. Do we expect parasites who exploit the underpaid to somehow draw an ethical line at veterans?

For some reason, I’m reminded of the story that Napoleon lost troops in the Syrian campaign to suffocation, due to drinking water tainted with leeches…

The last point, though, is more generally illustrative of the secrecy culture in the military that needs to stop. Sexual assault, financial troubles, shady operations, and yet we wonder why suicides and PTSD are on the rise.

This line of reasoning is EXACTLY whats wrong with the US right now. They are adults entering into a transaction with a vendor. Treating them like incapable, innocent children is ridiculous. On top of that, the military has EXTENSIVE programs telling young E-1’s and E-2’s not to go to payday lenders and not to get married.

They are grown ass adults. If I want to take a ridiculous loan out at 300% annually, and I can find someone to lend it me, I sure as hell don’t want some do-gooder bureaucrat telling me if its proper or not.

Stop treating 18+ year olds that are adult enough to deploy to a war zone as if they are children when it comes to everything else. To include drinking beer (it should return to being allowed on base).

Outrageous: Our corporate - corrupted Reps and Dems (BOTH) send our military to slaughter and slaughtered in criminal wars of aggression and then return to be exploited this way. Instead of just complaining, lift a finger!: change voter registration to independent, don’t give Reps or Dems a dime, don’t volunteer, pollsters only that both major parities are too corrupted b y money to serve any more.

Logan, is it possible, instead, that maybe someone with the competence of a soldier falling for the “installment loan” problem means that this isn’t just an honest business with a bounty of foolish customers and maybe they’re acting unethically?

We need to get rid of this idea that “capitalism” means that whoever is turning a profit gets a free pass on things like law and honesty. When a bank, a government, a salesman, or a religious leader takes advantage of stupid people, we want to stop them. Whether or not you want to stop them to help the victim is irrelevant. We should want to stop them to keep our economy (or political system or spiritual life or whatever) from being more laughable than it has already become.

If companies get away with this, then food companies will get away with Chinese-like replacement of beef with rat meat and milk protein with plastic. I mean, if you’re stupid enough to not chemically test samples of every bit of food you buy (I mean, a lab only costs a few hundred bucks per test), you’re an adult entering into a transaction with a vendor, and why should the government treat you like a child?

John
I am former military. Every town next to every large base in the country has finance options set up to assist military, usually on a drag just like the one in the story.

If I am a 18-20 year service member I have a guaranteed paycheck for the next three years, and my finances are the problem of my command, I can get access to credit way disproportionate to my credit score, because i am a very solid credit risk. I can buy TVs, trucks, furniture, pretty much any amenity, to include payday lending.

I also get counseled up and down my chain of command until everyone is sick of the ‘training’ on how I absolutely should avoid payday lenders, lemon lots, and all the places offering credit.

And yet, I still choose to ignore literally hours of education on how f’d the whole situation. And the ProPublica comes in like its saving the day to tell how taken advantage of I am, just like low income private citizens. What a load of BS.

How about increase the paycheck? Not any more legislation and regulation PLEASE…

You want to help save and motivate privates? Let them drink beer legally. Give them a free taxi to and from bars. The 10k legal fee of drunk driving is far more of a financial impact than someone spending too much of their paycheck on things they can’t afford.

Part of the revision should be Congress’ readjusting these loans from high-cost lenders down to a reasonable interest rate with these loan sharks “eating” the balance. These shops would not be in business but for our military. Come on, Congress, you need to jump on this one very quickly and cut out the partisan crap.

I agree with Melanie. These companies should have their gravy train taken away.

Logan, I am not sure I understand you about the drinking. Are you saying that the reason behind soldiers needing cash in a hurry is to take care of fines relating to drinking?

While it may sound good on the surface, drinking ages need to be uniform. An intoxicated soldier at 18 is no better than an intoxicated college student or a general working stiff, or unemployed person of the same age. Unfortunately, at that age people have a tendency of wanting to drink to get drunk.

Bob
As a veteran, this article comes off like ProPublica’s trying to score points for ‘exposing’ an insidious plot taking advantage of service members. It is a well known dynamic, and has been in the military for decades.15 years ago, we were getting the block training to stay away from pay day lenders and lemon lots.

The drinking comment was flippant and directed as a functional way to improve morale, not stamp and pout to the public about how pro military you are;ie this article whose message is look at these poor military people who ignore COPIOUS amounts of instruction that we are then going to excuse for poor decision making. (sarcasm)

This whole dynamic is because we as a society refuse to treat adults as adults. If kids are still kids when they are legally adults at 18, then we should switch the age to be an adult. We can’t trust them with a beer but we can have them influence selecting a president?

The idea that oh they are just college kids reinforces the nanny state and extended infancy of our young. When we expect immaturity, shock of shocks, thats what we get. In the military, a 19 year old can reasonably be expected to exhibit the judgement of a seasoned police officer when it comes to potentially shooting someone overseas. They learn, know, understand, and are held to rules, and their interprettation and articulation is taught from the get go.

Military men, age 18-22 ARE different than college kids age 18-22, who have no accountability to anyone other than their parents.

If we insist that they are too immature to handle alcohol, then they should be too immature to vote. Thats why there are age req’s to be a senator, Right?

Logan, I agree with your other solutions. But my point is that, while everything you say is right, these are business preying on your colleagues.

When you buy a car and the engine falls out because the seller figured you were too stupid to bother making things right, nobody (except the seller) would ever say that this is just business, caveat emptor.

In no field is this ever acceptable to anybody (again, except the predators), except somehow loans. Somehow, when the “product” is money, all law and sense gets thrown out the window. It’s an “error” for a bank to automatically sign hundreds of eviction notices. It’s the customer’s fault for getting bullied and tricked into signing a bad contract. It’s just business to have a company that takes, takes, takes, and never provides any real service.

You’re absolutely right that certain customers are easy prey because other problems haven’t been solved, of course. But it should still be recognized as dangerous that people are able to capitalize on making those problems chronic and amplifying them. It’s not a matter of the victim, really, though the story is more interesting with a sympathetic victim. It’s a matter of there being lousy people who make a living exploiting others that society should want to stop.

For the last two decades, there has been a magnus pous MO-Modus Operandi to steal money from American citizens. With mortgage lenders, the banking institutions and credit card, insurance deriitives, health care, it was all deregulated so banking, real estate and insurance(health care included) would all get into each other’s business giving us the business. Hence, IN it’s ultimate effort to steal, we are all and have been all victims of predatory business practices. Where ever does all that money go? Young soldiers are preyed upon as well as everyone else who are mostly working stiffs. But to prey on the young soldiers is especially onus because they are are lured to fight in wars that are well crafted for high end thieving investors (Wall st and the SEC were in on this) and this is primarily where all this stolen money goes via kpmg. To steal from young soldiers via loans such as this in this article is inexcusable and like all young people, they aren’t left with much from start to end while they are in the service unlike they’re mercenary friends who benefited greatly during wars that were started on one of the biggest lies told to the American people and this theft make these young soldiers perfect victims to steal from. Leadership in D.C.since the early 70’s and on, are responsible, but not all.

Also our students (parents too) are getting gouged by predatory private non profit schools and public (privatized but not known to most) institutions but who are still receiving millions if not billions in federal funding. It is legal so they say but is it?

Bob
No doubt they exist to prey on good credit, and the goods they peddle are substandard. BUT it is not the governments position to decide what is FAIR. Who in the gov’t does this? the faceless they?

If the money merchants are lying on applications, falsifying paperwork, we have things to deal with that already, its called FRAUD.

If they are just offering crappy products, horrible interest rates, or being plain mean, who are we to stop people who want to use that service? Especially in light of the already extremely robust education against their use.

Its the same in the housing sector. Where loan docs were ‘robo-signed’, where loans were sold so many times they lost who owned them, where nobody knows what entity has the legal right to foreclosure, yes those are problems. But where your neighbor wanted to refi his house to buy his new car? That is not victim hood that is just foolish financial management.

Trying to regulate stupidity and ignorance out of existence is silly to me. Even when it is good people that it happens to. And yes we should have let the large financial institutions fail over giving them a bailout, because that should have been the risk of their playing the ‘financial products’ engineering game.

There is some personal accountability there, because at no time do any one of these lenders FORCE someone to borrow. They just set the conditions to encourage it and like a pot of honey left out, here come the ants.

Same dynamic with college and federal loans. Pretty much no student is denied, and no matter how much you write in the contract that the loan does no guarantee a career, and oh by the way can’t ever be defaulted on. If every one can get the money, and get on the hook for it, no wonder the cost of college rises because there is no competing interest controlling it.

Government, with decision makers usually being people who judge from the sideline of the private sector how they think things ‘should’ run having often never actually done it themselves, generally screws up every grand plan it gets it hands on.

If there is FRAUD, then yes prosecute. If there is IGNORANCE, or NAIVETE, well then thats a different story.

I was not lured to fight, I was driven from the education system by these college ‘kids’ in question. I could not stomach wasting my own money to listen to children laugh at teachers that I was paying to learn from.

The reason they can do that is because they have access to pretty much free money, provided by the government.

How about we get the government out of preying on students, giving them near free, but undefaultable loans, with the unintended consequence of driving up educational costs? How horrible is it that we trap those students with loans til they are 40?

Wouldn’t a better way be to not let them get the money, the schools costs would realign with their actual value, and the system would settle?

Then future students like myself who work full time to put themselves through college wouldn’t be driven into the evil military, to fight wars to allow taking advantage of our students by the big mean governmen. (sarcasm)

There are two sides to the coin you are flipping. Finacial engineering is being done by both private and publice entities. No matter which face we look at, it is the same thing, so my opinion is you can’t address one withou addressing both

I am a retired service member. I spent time as a Junior Enlisted, a Senior NCO, and finally a commissioned officer. Payday loans existed back in the 70’s when I first came into the Military. I am not surprised that they have slicked up their by-lines to get people to sign on the dotted line. Service members leave the gate and are hammered with fancy signs and quick promises and the 30 minute boring briefing during in-processing doesn’t provide people with the tools they need to make financial decisions.

Young junior enlisted need a tremendous amount of continual supervision. Just because they’ve signed up, been through a couple of occupational schools and then fought a war - doesn’t mean they have the life experiences needed to make good financial judgements.

Do I think that there needs to be more specific legislation on these services. That’s a complicated story. Do we operate under a democratic free economy? - yes we do. Is it always right? - no. Do we need to better understand the basic drivers of why folks are making these decisions. Oh heck yes! When I came into Military I made around $200 a month. Several years later as a NCO, married with one child, I begged the finance office to reduce my pay by $50 a month so we could get food stamps and the like. As an Officer, I finally made enough so I could reasonably take care of my growing family. That is until I was sent to high cost of living areas like Los Angeles. My wife had to take a full time job just to make ends meet.

I guess the summary here is that we need to take a REAL HARD LOOK at how we pay, retain, and retire the people that make up the military. Oh, and now, I am fully disabled due to my service. The reward there is around $340 a month because the VA uses pay tables published decades ago… These are the realities we Service Members face. They are not at all unlike people who are civilians. We just can’t do anything about it because of the daily demands on our time. Did I mention that many Officers work routine 65+ hours a week and are on call the rest of the time.

Don’t get me wrong, I absolutely loved the time I spent in the Military. I was able to take advantage of just about every program that came my way. I went to so many places overseas and saw so many people and did so much good that, if I could, I’d go back on Active Duty in a heart beat. But, there needs to be a concerted long term vision of how we pay, retain, and reward the people that actually make the military work.

There is no such thing as free and one way or another you’ll pay for it and if not now, later!
Our current system is predatory, That money in your wallet actually is a magnet to those who actually think it automatically belongs to them. That is the “business” model for years but really worse than ever before because the services you think you are getting are poor at best. Quantity (money) wins over quality (the goods you buy such as health care, education, etc) . Most of it is based on a knowing fraud, knowing that systems are designed and devised to get that money out of your wallet (atm) faster than it came in. While we fight over who got what “for nothing”, there are those who designed (what great diversions) the predatory system by those are laughing all the way to their bank with our money!

Simple. They break the law, restitution 3x the actual damages, make the corporate officers personally liable for fraud and corporate policies that promote it, 3 convictions and the companies are shut down on US soil and their assets siezed as a RICO organization.

We’re all been victims of predatory business and congress IS the only one to say yay or nay to anything that goes on in this country and from where I sit, I’d say congress has been doing the crappiest job ever and I’m being nice here and anything they like it is because it benefits them not us, thus we’re on the hook for outrageous education interest rates with crappy schools, mortgages that took down the housing industry and people into the street, healthcare and insurance where many can’t get medical care that all benefits congress directly or indirectly.
Bush allowed that. He allowed a lot of things that have hurt this country to the max. And we can debate the point but it when the banking realty and health care regulations were dismissed by bush, then many things occurred and most of us our up to our eyeballs without anything but debt with interest galore. It was all rigged and I like the idea of 3 strikes and you’re charged with RICO because that ia what has been going on and congress with the bush factor raided this country’s treasury!

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